SBA 504 Loans Hit Record Low Interest Rates for September

Editor’s Note: insideARM.com will be conducting a webinar on Wednesday, September 21 on SBA Loans for debt collection agencies. Owners, CFOs, and finance executives of collection agencies considering expansion or other capital asset investment should check it out. Many in the ARM industry might assume that SBA loans aren’t for collection agencies, but we have numbers that disprove that. Learn more.

The Small Business Administration’s (SBA) 504 loan program is providing long-term, fixed rate financing for commercial real estate and the purchase of long-term capital assets at the lowest interest rates since the program’s inception. The SBA’s lending partners, Certified Development Companies (CDCs) are busy working with small business borrowers who are taking advantage of these great rates to finally purchase or build their own facilities or acquire long term capital assets such as equipment and machinery.

NADCO, the trade association for the nation’s Certified Development Companies (CDCs) reports that the interest rates for both the 20-year SBA 504 loan and the 10-year SBA 504 loan have hit record lows for projects funded in September 2011.

The debentures that funded this month’s 20-year 504 loans were sold to investors at an interest rate of 2.85% falling below the previous low of 3.88% in June of 2010. The 10-year loan debentures were sold at an interest rate of 1.53% which eclipses the previous low of 1.81% in November 2010.

The official interest rates should be published by September 12, but it is expected that the low rates for the debenture sales this month will result in estimated effective interest rates for small business borrowers — including servicing fees — of only 4.69% for a 20-year loan. For a 10-year loan the estimated effective interest rate is a low 3.75% for September.

Chris Crawford, NADCO President commented, “This is an incredible rate for a 20-year, fixed rate commercial loan, especially when you consider down payments can be as little as 10%. For those small businesses that have been considering investing in their own facilities or upgrading their equipment, there has never been a better time to take advantage of these record low interest rates. Also with commercial properties plentiful and the 20-year interest rate sitting at roughly 4.69 %, the 504 loan is an extremely attractive financing option right now.

The Small Business Administration’s (SBA) 504 loan program provides long-term, fixed rate financing for small business owners nationwide. Since the program’s inception 504 loans have funded over $62 billion in loans to over 130,000 small businesses. In turn, those small businesses have created or retained over 2.1 million jobs for our national economy. Certified Development Companies (CDCs) continue to work with small business owners who are taking advantage of these record low interest rates to purchase, build and expand their facilities or purchase capital intensive machinery and equipment.

SBA 504 loans are designed to cover up to 40 % of a project’s costs with a maximum of $5 million in funding, however, the CDC partners with a bank that provides 50% of the project financing and the borrower typically puts in 10% as a down payment. SBA 504 loans can go as high as $5.5 million for manufacturing projects and most green projects. In fact, more and more small businesses are seeing the benefit of retrofitting existing properties or building new facilities with energy savings technologies. SBA 504 loans can fund up to $5.5 million on these projects. When you add in the bank loan and the small business contribution, total project costs can sometimes go as high as $15 million if the bank decides to fund more than 50%.

Created in 1981, the National Association of Development Companies is the trade association for America’s Certified Development Companies (CDCs). Certified by the U.S. Small Business Administration, CDCs are community-based economic development organizations that serve their local communities and states, and are dedicated to the promotion of small business expansion and job creation through SBA’s 504 Loan Program. In addition to the 504 program, many CDCs also provide small businesses with access to other Federal, state and local economic development loan programs. These programs provide both long and short term funding for borrowers. Based in the suburbs of Washington, D.C., NADCO provides legislative and regulatory support for the 504 Loan Program on behalf of CDCs, the program’s lending partners (including first mortgage lenders, attorneys and others allied to the industry), and 504 small business borrowers.